Rating agency Crisil today said it expects revenue from value-added dairy products to clip at 14-15 per cent annually over the next three fiscals, a growth of around 50 per cent faster than the overall sector's growth rate.
Rising income levels, changing lifestyles and increasing health and quality consciousness is leading to higher revenue growth from value-added dairy products compared with milk.
"That (growth), along with steady growth in milk sales, should crank up the dairy sector's revenue to Rs 7.5 lakh crore by fiscal 2021 from Rs 5.7 lakh crore in fiscal 2018," it said in a statement.
Crisil rates over 100 dairy firms, which account for about 60 per cent of the organised segment's revenue.
With contribution from value-added dairy products rising, operating margins of Crisil-rated dairies have improved around 50 basis points to about 4 per cent (not adjusting for periodical bonus paid by cooperatives to farmers) in three fiscals through 2018. A further 50 bps improvement is likely by fiscal 2021, driven by value-added dairy products sales, it said.
"We believe value-added dairy products revenues will continue to benefit from rising urbanisation. And with more women joining the workforce, fewer homes would continue the chore of processing milk into curd and butter in the urban and semi-urban areas," Crisil Ratings senior director Anuj Sethi said. The agency said revenue growth will be driven largely by volumes.
"Increase in realisations will remain muted given that growth in milk supply will be in line with demand. But the high growth in value-added dairy products will necessitate investments in capacities and infrastructure," it said.
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It expects organised dairies spending around Rs 14,000 crore over the next three fiscal, similar to the previous three fiscals, to enhance processing capacity by 25-30 per cent and strengthen milk procurement infrastructure.
The investments are expected to be funded with moderate dependence on borrowings, including soft loans from the government's Dairy Processing and Infrastructure Development Fund, besides public and private equity.
"Prudent funding mix and better cash generation will keep capital structure of organised dairies satisfactory with gearing of 1.0-1.2 times, in spite of sizeable capex," Crisil Ratings Associate Director Poonam Upadhyay said.